German stocks rose by more than 1% as investors ignored worrying export and import data. The closely-watched DAX index rose by more than 1% as investors banked on a global recovery.
German stocks as trade tensions cools
The DAX index rose partly because trade tensions between the United States and China cooled down. This followed a telephone call between Robert Lighthizer, Steven Mnuchin, and China’s Liu He. The three officials agreed to stick to the principles of the deal that was announced in January.
China has not stuck to the January deal partly because of the coronavirus pandemic. This, together with accusations by Trump that the country was responsible for the virus has led to speculations that a trade war was inevitable.
Chinese authority have responded to Trump by authoring provocative editorials in Chinese media like Global Times. In the today’s editorial, the paper accused the US system for helping fuel Trump’s hooloiganism.
Trump himself has talked about applying tariffs on Chinese goods as a way of punishing the country. As I wrote yesterday, according to the Financial Times, the White House was coming up with key strategies to punish China. Another trade war would not be beneficial for German stocks, which do well in an open society.
DAX index rises amid exports crash
Earlier today, we received disappointing data from Germany, the superpower of Europe. The numbers showed that exports dropped by a record 15% in March from February. This was a deeper contraction than what analysts were expecting. In the same month, imports declined by 5.1%, which was the sharpest decline since the last financial crisis.
These numbers came after the industrial production and retail sales data for March disappointed too. As a result, the trade surplus declined to EUR 12.8 billion, which was lower than the EUR24.5 billion forecast by the WSJ.
The weak trade numbers in March mean that the data for April will be worse because most companies like Daimler and Volkswagen were not doing a lot of business in the month.
Siemens performance push GER30 up
German stocks also rose after the performance of Siemens, the industrial giant. The company’s second quarter net income dropped by 64% to EUR697 million from last year’s EUR 1.92 billion. As a result, the EPS came in at 0.80 euros from the previous 2.24 euros. It made more than 14.2 billion euros from the previous EUR 14.245 billion. Also, the company removed its guidance because of the virus.
Best and worst performers
Most companies in the DAX index did well today. The best performing ones were Wirecard, Fresenius, Siemens, and Heidelbergcement among others. The laggards were Deutsche Bank, Lufthansa, and SAP
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DAX Index technical outlook
The DAX index moved up slightly to a high of 10,890, which is slightly below the 50% Fibonacci retracement level. The price is also inches above the 50-day EMA and is above the blue trend line. Therefore, I expect the bullish trend to continue as bulls attempt to test the upper side of the channel and the 100-day EMA at 11,383.
On the flip side, a move below 10,400 will invalidate this price action. This price is at the intersection of the 38.2% retracement level and the blue trend line.
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